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Click here to view Issue 34
Don’t Leave It All on the Field:
Why Athletes Require Special Planning
Contents
Contents Introduction ..................................................................................................................................... 1
Athlete Special Circumstances ....................................................................................................... 1
Financial Imprudence of Athletes ............................................................................................... 4
Risks Faced by Professional Athletes Must Be Addressed ............................................................ 5
Social and Societal Challenges for the Professional Athlete .......................................................... 8
Family ......................................................................................................................................... 8
Lifestyle .................................................................................................................................... 10
Family, Friends and the Entourage ........................................................................................... 10
Predators, Lawsuits and Other Legal Issues ............................................................................. 11
Poor Investments ....................................................................................................................... 11
No Financial Planning............................................................................................................... 11
Comprehensive Wealth Planning for the Professional Athlete..................................................... 12
Broad Based Planning Essential ............................................................................................... 12
Athletes Can Be Protected with a Collaborative Team of Independent Advisers .................... 13
Managing the Athlete’s Investments ........................................................................................ 13
Tax Planning for the Athlete ......................................................................................................... 17
Gift Taxes.................................................................................................................................. 17
Estate Taxes .............................................................................................................................. 18
Income Tax Planning Generally ............................................................................................... 19
State Income Tax Planning ....................................................................................................... 19
Asset Protection Planning for the Athlete ..................................................................................... 20
Insurance Planning for the Athlete ............................................................................................... 22
Disability Insurance .................................................................................................................. 22
Life Insurance ........................................................................................................................... 23
Trust Planning for Athletes ........................................................................................................... 24
The ILIT vs. the DAPT ............................................................................................................. 24
Beneficiary Defective Irrevocable Trust ................................................................................... 25
Trust Drafting and Structuring Considerations ......................................................................... 27
Timing Transfers ....................................................................................................................... 28
Other Estate Planning Documents and Steps for the Athlete ....................................................... 28
Pension Plans ............................................................................................................................ 28
Domicile .................................................................................................................................... 29
Revocable Living Trust............................................................................................................. 29
Power of Attorney ..................................................................................................................... 29
Living Wills/Health Proxies ..................................................................................................... 29
Disability Planning.................................................................................................................... 30
Private Foundations .................................................................................................................. 30
Right of Publicity ...................................................................................................................... 30
Conclusion .................................................................................................................................... 30
Don’t Leave It All on the Field:
Why Athletes Require Special Planning
By: K. Eli Akhavan, Esq., Evan Bloom, Esq., Jonathan Shenkman, MBA, Martin M. Shenkman,
Esq. Ben Utecht, and Eido M. Walny, Esq.1
Introduction
The professional athlete needs the same sound foundation of financial and estate planning that all
wealthy clients require. However, the professional athlete typically faces many unique
circumstances that must be integrated into the planning process. Movie stars, musicians,
entertainers, and others with “star” power encounter some of the challenges common to athletes,
so that the applicability of some of the planning ideas discussed here will be broader than merely
for athlete clients.
There is potentially an important time pressure to planning for pro athletes that might require
quick action. If the political balance of power changes in Washington in 2020, a Democratic
administration might enact restrictive estate tax changes similar to that proposed by Senator
Bernie Sanders in the Senate and Congressman Jimmy Gomez (CA-34) in the House. These bills
reduce the gift tax exemption to $1 million and the estate tax exemption to $3.5 million.
Discounts, GRATs, grantor trusts and GST planning may all be severely restricted. Thus, for
athletes that have already amassed substantial wealth, planning should proceed before those
changes might occur.
Athlete Special Circumstances
The professional athlete may face any, or all, of the following circumstances which practitioners
need to consider:
• Early financial peak. Most clients tend to achieve peak earnings and savings in their
50s, 60s, or later. While there are exceptions, e.g., high tech and other entrepreneurs, the
professional athlete trends towards the extreme with many reaching peak earning years at
a very young age, perhaps e.g. in their 20s. Peak earnings at a such a youthful stage of
life can create significant challenges for retirement, estate, and asset protection planning.
• Sudden wealth. The wealth of the professional athlete often comes quickly. Most clients
have a build-up of years of increasing financial success that can prepare them for future
high income years. Athletes are often thrust into wealth so quickly that there is no period
for adjustment. On their rapid, sometimes literally overnight, ascent to wealth, they
frequently and incorrectly perceive that they are protected from the vicissitudes of life
and are impervious to insolvency, economic downturns, unethical advisers, and more.
1 K. Eli Akhavan is an attorney at Norton Rose Fulbright in the firm’s New York City office, Evan Bloom is an
attorney, Martin M. Shenkman, Esq. is an attorney in Fort Lee, NJ, Jonathan I. Shenkman, MBA, is a financial
advisor at Oppenheimer & Co., Inc. in New York City, Ben Utecht is a Super Bowl XLI Champion and Chief
Performance Officer of Management Essentials, and Eido M. Walny, Esq. is an attorney in Milwaukee, WI.
• Injuries. The risk of injury is a paramount concern for the professional athlete. For
many, there is a high risk of disabling injuries that can occur anytime during the athlete’s
career. Those injuries may end what otherwise was an illustrious career trajectory. The
average NFL career is only about 2 ½ to 3 ½ years because of injury creating turnover.
The potential loss of income often cannot be insured against by the purchase of a
disability income replacement policy that protects most clients. So unique planning steps
are necessary.
• Lack of time. Most clients can meet with their advisors with just a little bit of planning
and handiwork on a calendar. The average client can also take time to research people
and concepts that are foreign to them so that they feel comfortable. But athletes must
constantly deal with incredible time pressure of training and games and worry about a
variety of risks including even losing their job and thus their income. Athletes are
generally on a rigid, unforgiving schedule. This schedule can include team activities,
training, and other required activities. The result is often limited free time that the athlete
holds dear thus making meetings to review important planning quite difficult to schedule.
• Lack of financial literacy. Many athletes have limited financial and legal background,
which adds an extra challenge to their planning. There really is no good educational
platform to help athletes get a good understanding of business and finance. While the
leagues have made efforts, time and practical experiences are significant limiting factors.
The personal values of the athlete may also influence how they respond to financial
matters. For example, an athlete that grew up in a Christian household imbued with
values of stewardship may view financial matters from a different lens than an athlete
that grew up in a different environment. Thus, practitioners who are trying to
communicate with the athlete client, and educate that client about financial matters, the
first step is to understand the client’s knowledge, perspective and views of planning, so
that the discussions can be appropriately framed.
• Variable income sources. Endorsements and other intangible contractual rights
constitute a variable and uncertain, but potentially lucrative, income stream that cannot be
ignored. While adding a layer of complexity, these income sources also add potential
planning opportunities if recognized and harness properly.
• Advisor team is broader. Many clients have an advisory board comprised of an
attorney, CPA, and wealth advisor. But for the professional athlete, others are likely to
also be involved including a sports agent, manager, or management team. Also, consider
adding a “life coach” who can provide coaching, mentorship and guidance to the athlete
on a more personal level. Ideally, such an executive coach would ideally understand the
financial and legal issues in a broad non-technical sense and support the efforts of the rest
of the professional.
• Friends. An entourage can become more than mere hangers-on and can actually
undermine planning efforts. Some of the athlete’s friends are true well-wishers, but many
might be manipulators, or worse. For some athletes, these purported friends turn out to be
their most dangerous financial risk.
• Family and personal relationships. Too often, the people closest to the athlete may
present the most serious financial threat. The high income, high visibility, and star power
of an athlete can all lead to a wide range of different relationships, and costs associated
with those relationships. Many professional athletes have had children out of wedlock.
New York Jets DB Antonio Cromartie is reported to have fathered 8 children by 6
different women. Former NFL running back Travis Henry is reported to have fathered 10
children from 9 different women. Like alimony, child support payments are often
calculated based on the athlete’s earning power during his career. The child support
exposure for these athletes can be tremendous.
• Spending habits. Most notably, this includes unrestrained spending habits pushed by
teammates and others. Peer pressure on athletes to keep up with extravagant spending
patterns of their more successful, established, and wealthier teammates can create a
dangerous influence. These teammates themselves often spend without having taken even
the minimal financial planning steps. The spending bar is often established at an
unsupportable level for the wealthier athlete, and one which can be devastating for the
younger athlete.
• Lockouts. Having to stop work with little notice and a cut-off of compensation can
present a significant financial risk for athletes, especially young athletes that have not
amassed any meaningful savings. In a limited duration, high earning career, many
athletes earn significant compensation and other sports-related income over a short
duration of time. This presents a challenge to save sufficient sums during that brief
period to support lifestyle expenses over what might be a long post-career lifetime. For
example, the average NFL player’s career span is less than four years and the median
NFL income is $750,000.2 Lockouts will further compress this high-earning window.
• Privacy. Privacy is difficult for all clients in a world of technology and ubiquitous
reporting requirements. For the athlete it is even more difficult. There is a greater need
for privacy, and a more challenging task of maintaining it as the athlete’s success grows.
Each of these common characteristics affects every aspect of the planning, drafting, and plan
implementation process. Practitioners need to tailor efforts on behalf of these clients to enable
them to achieve the security that the planning process should provide. This article will provide
some background on the common characteristics of professional athletes and review
modifications to estate planning and drafting. These adjustments range from simple
modifications in a living will, to more complex planning techniques such as utilizing a
beneficiary defective irrevocable trust (“BDIT”) which might have unique benefits for the
professional athlete.
2 Leigh Steinberg, 5 Reasons Why 80% of Retired NFL Players Go Broke, Forbes, Feb. 9, 2015.
https://www.forbes.com/sites/leighsteinberg/2015/02/09/5-reasons-why-80-of-retired-nfl-players-go-
broke/#127263d178cc
Financial Imprudence of Athletes
An overwhelming majority of professional athletes are financially destitute within 10 years of
retirement from playing professional sports. Nearly 80% of NFL players are near bankruptcy
within two years after leaving professional football.3 Almost 60% of former NBA basketball
players have limited financial resources within 5 years of retirement.4
In the now-famous “LeBron Rise” Nike commercial, LeBron James asks, “What should I do?
Should I admit I’ve made mistakes?” Unfortunately, as the statistics show, LeBron James is far
from the only professional athlete who has a few financial mistakes to admit.5
Not all is dismal, of course. Shaquille O’Neal is an example of an athlete who overcame these
terrible statistics. One of the highest earning and best-marketed athletes ever, O’Neal managed to
be successful both on and off the basketball court. His philosophy on financial planning, which
he shares with rookies, is to set aside 75% of one’s annual earnings.6 O’Neal’s advice may seem
simplistic to advisors, but it is not to athletes who typically have no background in financial
planning and often spend millions on frivolous items. The absurdity of some athlete financial
shenanigans can be difficult for even the professional advisor to fathom. For example, former
professional basketball player Rod Strickland spent approximately $4 million on a lifetime
supply of grape Kool-Aid. Strickland, however, is not the only one to fall victim to undisciplined
spending habits. Financial trouble touches a wide range of athletes. These problems are so
endemic that practitioners should assume them to be a risk for every athlete-client, until
prudence is demonstrated. Professionals must counsel the athlete client on how to avoid these
issues. Consider the estimated career earnings of the following star athletes:7
• Mike Tyson (boxing) - $300 - $400 million
• Allen Iverson (NBA) - $160 million
• Michael Vick (NFL) - $130 million
• Scottie Pippen (NBA) - $120 million
• Antoine Walker (NBA) - $110 million
• George Best (soccer) - $100 million
• Latrell Sprewell (NBA) - $100 million
• Sergei Fedorov (NHL) - $95 million
• Terrell Owens (NFL) - $80 million
• Mike Madano (NHL) - $78 million
• Mark Brunell (NFL) - $52 million
• Lawrence Taylor (NFL) - $50 million
3 Pablo S. Torre, How (and Why) Athletes Go Broke, Sports Illustrated, March 23, 2009. 4 Id. 5 Dan Kadlec, What You Have in Common With Bankrupt Pro Athletes, Money, June 10, 2016.
http://time.com/money/4362102/bankrupt-athletes-lessons-for-you/ 6 Motez Bishara and Don Riddell, Shaquille O’Neal: ‘I spent $1M in about 45 minutes…but it was worth it’, CNN
Sport, December 4, 2015. http://edition.cnn.com/2015/12/04/sport/shaquille-oneal-and-charles-barkley-of-the-nba-
impart-financial-advise/. 7 Drea Knufken, 25 Rich Athletes Who Went Broke, Business Pundit, May 18, 2009.
<http://www.businesspundit.com/25-rich-athletes-who-went-broke/.>
• Sheryl Swoopes (WNBA) - $50 million
• Boris Becker (tennis) - $25 million
• Jack Clark (MLB) - $20 million
The above named athletes are sports success stories, but all of them have either filed for
bankruptcy, or had little left of their fortunes after leaving professional sports. These athletes –
and countless others – now have to worry about how they will support themselves and their
families when the million-dollar salaries have stopped. Implementing basic planning precautions
could have prevented their ruin. But their downfall provides powerful lessons to motivate current
athlete clients to proactively plan to avoid similar results. It is often difficult for fans, even astute
professional advisor-fans, to comprehend that these All-Stars, All-Pros, Hall of Famers, and
worldwide sports icons, could obtain such great fortune yet lose it so quickly.
Risks Faced by Professional Athletes Must Be Addressed
While professional advisors may be tempted to approach the professional athlete with thoughts
of sophisticated estate planning, asset protection, and investment allocations, a foundation of
fiscal prudence must always be the first step. Without that critical building block there may be
little wealth left to protect, invest, or save taxes on. While pro-sports organizations are doing
more than ever to educate athletes, there remain many challenges.
A common reaction of many athletes to the stories about penniless former pros is: “that will
never happen to me.” Accustomed to their tremendous success on the field, along with the
trappings and rewards of star power, it is often difficult for the athlete to accept limitations that
they might have in other areas, like financial matters. Guiding the athlete-client must therefore
include the following considerations:
• Start early. Financial planning and precautions are critical for professional athletes and
the best results will be achieved if the process can be started early in their career. With
such short career for so many professional athletes, starting early means as close as
possible to the point when the athlete began earning significant money. This is very
different then for most clients professional advisers serve. A year deal for most clients is
insignificant. For a young athlete, it could make achieving financial independence much
more difficult.
• Sudden loss of earning power. “Retirement” could occur when the athlete is incredibly
young, even in his or her 20’s or 30’s, not at a more typically assumed retirement age
of 65. Retirement for the professional athlete is often far more traumatic than for typical
clients. Earning power can plummet or entirely disappear, and the loss of prestige, that
magnetic star power that kept the athlete motivated, may be even more difficult for the
athlete to deal with emotionally then the loss of a salary. Even if the athlete pursues a
post-professional sports career, it should be assumed for forecasts and planning that post-
retirement income will be modest until demonstrated otherwise.
• Mental Health. There are a range of mental health issues that can have a significant
effect on planning generally, and on serving the professional athlete client. The potential
for depression due to an injury or career reversal is significant. With the new knowledge
of the long term effect of brain injuries in contact sports, and the costs of continuing care,
advisers should give this issue special attention. If the athlete can invest funds into a long
term care policy that may be advisable to address as well. Advisers should be sensitive to
the risks of addiction, e.g. drug or alcohol abuse, or other challenges the professional
athlete might have. These may affect the athlete’s motivation to plan, spending matters,
etc. Adding a life coach to the planning team may help address these issues but
counseling and other services might be necessary.
• Predators. Professional athletes are often targets for a range of predators. What would
merely be a fender bender car accident for a “regular” client and likely end with a simple
exchange of insurance information, could quickly escalate for the professional athlete.
The other party is more likely to assume that there is significant wealth and perhaps has a
publicity motive to escalate the case. Thus, the athlete is more likely to find that common
social encounters and run-ins have higher potential to lead to costly tort litigation. A
“punk” seeking to prove his manhood may pick a fist fight and then sue or sell the story
to a tabloid.
In extreme cases, an athlete’s entire career and future may be derailed by a predator.
Consider the story of former NBA forward Dante Cunningham. Cunningham was a
standout player at Villanova and later played for the Minnesota Timberwolves. He grew
up in a military family and was well-regarded both as a player and in his personal life.
However, his entire life flipped upside down in 2014, when he was falsely accused of
domestic violence by his then girlfriend. Despite his adamant denials that any abuse had
occurred, his contract was immediately not renewed by the Minnesota Timberwolves and
his reputation in the sports world plummeted, jeopardizing the career and goodwill he had
worked so hard to build. Four months later, the Minnesota district attorney dropped all
charges against Cunningham, citing a lack of any reasonable proof he committed a crime.
In fact, the accuser admitted to having made it all up. As professional sports leagues
continue to become hyper-sensitive and crackdown on perceived wrongs by athletes,
predators seeking a quick pay day will continue to exploit vulnerable athletes. Despite
difficult time limitations it behooves the professional athlete to hold at least annual
advisor meetings with the athlete and all key advisers involved. If coordinating such a
meeting in person is too difficult to accomplish, a web meeting might suffice. Having a
frank discussion of investment, business and other offers, current circumstances and
involvements, etc. may help one or more advisers pick up on clues of potential issues that
can be addressed before they fester into worse problems.
• False promises. Athletes, like many other professions, turn to each other for advice and
often act based on what peers claim to have done. But what others tell them is often not
true. Human nature dictates that the storyteller will play up (or fabricate completely)
successes while down-playing (or altogether ignoring) failures. The relationship between
former MLB pitchers Tom Candiotti and Todd Stottlemyre serves as a prime example.
Stottlemyre successfully transitioned to a position with Merrill Lynch during retirement.
Stottlemyre sold Candiotti on the idea that he could afford an $18 million life insurance
policy on a meager broadcasting salary. To convince Candiotti, Stottlemyre assured him
that he himself had purchased a similar policy. In the end, the deal that seemed too good
to be true ultimately was, and cost Candiotti large sums of money. The lesson from this
unfortunate anecdote is that the athlete needs to take the appropriate steps to safeguard
his or her financial wellbeing, and not fall prey to fishing tales, rumor, or innuendo. The
professional advisory team is often the best insulation. Athletes should make it a habit to
review every significant financial transaction with their professional advisers before
signing or committing to anything. What might look like a good opportunity proffered by
a fellow athlete, might readily be seen through as a poor deal, or worse, by the
professional adviser.
• Objectivity is key. For planning to succeed, the athlete must trust the planning process
and the advisor team collectively. This is not meaning that the athlete should trust just
any one adviser or company. Too often “specialists” have proven to be less than
competent or worse. Former players who play themselves up as experts who have
succeeded and can “help” (Lenny Dykstra, for example8) are also all too common. A
team of independent advisors who meet and communicate to create independent checks
and balances is critical. Athletes, and all others with star power, should heed the warning
that any advisor who does not want their recommendations vetted in the daylight of the
entire planning team should not be trusted. Athletes should be educated to always, as a
reflex, seek a second and third opinion from their advisors before taking any significant
financial action. The objectivity of independent advisers, to minimize the risk of a rouge
adviser taking undue advantage, or providing inappropriate advice is critical.
• Don’t go it alone. No matter how capable and astute the athlete, even if he or she has a
business degree, the forces against him or her are overwhelming and he or she is unlikely
to resist without assistance.
• Pressure-cooker of star power. The financial and legal pressures that athletes face are
incomparable to the pressures almost all other clients (perhaps other than Hollywood or
music stars) endure.
• Divorce. Divorce is prevalent amongst professional athletes. The athlete’s ex-spouse
may continue to reap the benefit of the athlete’s success at a time when the athlete is
effectively punished for that very success. Divorce alimony payments may be based
upon the athlete’s current financial situation. Modification when the inevitable career
changes occur may prove difficult, costly, and insufficient. Thus, the athlete’s ex-spouse
continues to reap the benefit of the athlete’s success at a time when the athlete is
effectively punished for that very success.
Based on the statistics, it is sadly probable that financial ruin will happen unless an athlete
utilizes the proper safeguards and preventative measures to protect their earnings. The summer
2011 labor stoppages in the NBA and NFL provide evidence that significant, negative financial
events may strike professional athletes. It is not a coincidence that the NBA and NFL Players’
Associations strongly encouraged athletes to save and protect their money. Indeed, the
negotiation process for the players’ unions was severely compromised as a result of many of
their players’ cash flow problems. Implementation of prudent financial and ancillary planning
may help.
8 The plight of Lenny Dykstra is well-documented. In 2008, the former baseball star launched a magazine aimed at
giving financial advice to professional athletes. The magazine was widely distributed in clubhouses and locker
rooms. A year later, amidst all sorts of unflattering allegations, Mr. Dykstra filed for bankruptcy protection,
claiming $50,000 of assets against tens of millions of dollars in debt.
In many cases, the biggest challenge practitioners face in planning for the professional athlete is
not in identifying the optimal tax planning, estate planning or investment options. Rather the
practitioner’s must often focus on first educating the athlete client to understand the importance
of planning for a short career followed by a long retirement. Advisers must endeavor to help the
young and financially naïve athlete resist the urge to keep spending up with their teammates and
other resist other societal pressures.
Social and Societal Challenges for the Professional Athlete
Athletes face a myriad of risks of financial ruin due to any combination of some of the common
issues discussed below.
Family
For a balanced view, many athletes have long term stable marriages. But many do not. So while
the following discussion focuses on the financial damage divorce can create, practitioners should
be certain to understand the circumstances of the particular athlete and not make assumptions.
Another issue that has arisen in recent years, and which has received considerable media
attention, is domestic abuse, whether of a spouse, friend or partner. The litigation and costs, not
to mention destructive publicity and possible loss of career, all should be considered as a
potential risk to the planning. This is another of the many reasons that adding a life coach to the
planning team for some athletes may be invaluable.
As discussed briefly above, no issue causes financial damage for athletes quite like divorce. Even
higher than the often cited 50% divorce rate statistic for the general public, some 60-80% of
marriages involving professional athletes end in divorce, and most of those divorces occur after
retirement when the athlete’s income stream has stopped.9 An ex-spouse is typically awarded
half of the marital assets, including the athlete’s salary earned during the marriage.
At the time of marriage, the spouse sees fame, luxury, and excitement. There is also a great deal
of freedom and independence when the athlete is away training and competing. However, after
the athlete’s playing career ends, the spouse may find that the athlete’s retirement persona is
quite different from that of his playing days. Likewise, marriage at a young age may seem
appealing to an athlete. His newfound fame and fortune will undoubtedly attract new potential
partners looking to capitalize on his wealth and naïveté. The stability of having a spouse during a
career of constant change can be comforting. This symbiotic relationship between athlete and
spouse may work during the athlete’s career but may not survive past retirement when both
spouses’ lifestyles dramatically evolve.
9 Greg Bishop, Taking Vows in a League Blindsided by Divorce, New York Times, August 8, 2009.
<http://www.nytimes.com/2009/08/09/sports/football/09marriage.html?_r=l.>
An example of an athlete who struggled with marriage and divorce is golf legend Greg Norman.
It has been estimated that Norman had to pay his ex-wife, former flight attendant Laura
Andrassy, $103 million in 2008 after the two were divorced.10
The high divorce rate among athletes leads to additional planning considerations. An athlete’s
control through limited-power irrevocable trusts, careful use of pre- and post-nuptial agreements,
and careful attention to the definition of heirs is particularly important. For example, how should
modern reproductive technology be considered? What difference, if any, should there be for a
bequest to an heir expressly identified by name in a will or trust versus an heir subsumed under a
general definition of “child”? In contrast to many other clients, the athlete may wish to carefully
delineate those children whom he or she deems to be his children and others who may be
provided for in a different manner.
While the athlete may be aware of prenuptial agreements, too often, as with all clients, if an
agreement is actually executed, it is completed too close to the marriage or subject to other
defects that make it susceptible to challenge. A preferable approach is to endeavor to:
• Be certain the spouse has independent counsel and other appropriate representation (e.g. a
CPA, appraiser, or other disciplines as required). The spouse should pay for his or her
own advisers, even if gifts are made. The client athlete should not pay for any of the
spouse’s advisers directly.
• Consider how the terms of the prenuptial agreement might appear to a court or even the
media if a divorce follows. Appearances may be more important for the professional
athlete then for other clients. If the athlete is young, healthy and insurable at inexpensive
rates, perhaps a larger policy might be offered in the prenuptial agreement then might be
offered for a client lacking “star power.”
• Full disclosure of all relevant information should be made in the exhibits to the prenuptial
agreement. This might include exhibits with team contracts, endorsement agreements,
recent tax returns, and more.
• Have the agreement signed as far in advance as possible of the actual marriage, before
invitations are sent, etc. While opinions differ and may vary by state, having the
agreement fully negotiated and signed at least several months before the wedding date is
advisable. Ideally negotiations should have begun well before that and draft agreements,
emails and other evidence of the duration of those negotiations in advance of execution
may be worthwhile to preserve.
• Assets that can be transferred into an irrevocable trust, such as a self-settled domestic
asset protection trust (“DAPT”), or any of the many variations of that technique, should
be transferred before the prenuptial agreement is signed and the existence of that DAPT
should be disclosed in the prenuptial agreement. There are wide variations in opinions as
to how much should be disclosed, but the pros/cons of full disclosure (attaching a copy of
10 Joe Crankshaw, Golfer Greg Norman’s Ex-Wife Gets $103 Million in Divorce Signing, TCPalm, July 11, 2008.
http://archive.tcpalm.com/news/golfer-greg-normans-ex-wife-gets-103-million-in-divorce-signing-ep-402686849-
348548261.html
the trust instrument and trust balance sheet to the prenuptial agreement) might be
considered and discussed with the client.11
Lifestyle
Along with the temptation athletes face to overspend because their more-established teammates
are also overspending on cars, jewelry, homes, boats, etc., drugs and gambling are also common
and expensive vices. Unfortunately, they soon learn that keeping up with the Joneses is
expensive and difficult, if not financially ruinous. A multi-million dollar contract will not go far
when an athlete spends more money than he or she is earning.
Professional athletes often fail to consider the long-term effects of impulsive purchases on their
future financial well-being. The real solution for the athlete would be a paradigm shift to
understand that the most luxurious and valuable purchase, the one that should truly draw the
admiration and jealousy of his or her peers, with a glimmer brighter than the biggest diamond, is
the acquisition of financial security. The most valuable, rewarding and long term luxury is
financial security itself. Perhaps demonstrating with financial modeling to the athlete client the
current financial scenario, what his or her financial picture might be at ages 40, 50 and 65 under
the current savings scenario versus a more robust savings plan. The forecasts should illustrate not
just wealth levels using Monte Carolo simulation, but what those wealth levels will realistically
mean in terms of spending power at those ages. Rerun the forecasts showing various levels of
change in current savings to demonstrate the long term financial benefits of sacrificing some
current consumption.
When the athlete intends to make a large purchase, such as a house, rerun the financial models
illustrating what a $2 million, $5 million and $10 million (or whatever values are appropriate for
the particular athlete) house purchase might look like in the long term. Reflect realistic carrying
costs, not just the impact of the purchase price. Again, illustrate to the athlete how the difference
between a $5 million and $10 million home today, can mean the difference between a livable
(even if less then desirable) cash flow at future ages, versus financial failure at a relatively young
age.
Family, Friends and the Entourage
Friends and family often expect the athlete to take care of them financially. And since it is easy
to spend someone else’s money, the standard of care expected by these friends and family can
often become exaggerated. The economic support of an entourage can be an insurmountable
financial burden to sustain.
The athlete’s budget should include line items for these types of expenditures. Empowering the
athlete to know, based on a quantitative analysis, how much they can spend on helping family,
friends or others without jeopardizing their own future and financial security may enable the
athlete to resist a major item of financial quicksand that has sunk so many others. As will be
discussed later, consideration should be given to having the athlete engage a buffer between his
money and potential predators, thus isolating a certain portion of the athlete’s wealth
permanently from loss. It is often difficult for the athlete to deal with the social pressures. Saying
11 For a detailed discussion of DAPTs and prenuptial planning see: Glazier, Shenkman & Gassman, “DAPTs &
Klabacka: At the Intersection of Estate Planning and Family Law,” LISI Asset Protection Planning Newsletter #357
(February 1, 2018) at http://www.leimbergservices.com
“no” to requests from family and friends can prove to be impossibly difficult. It is far easier for
the pressured athlete to say, “I’d love to, but you’ll have to ask my Trustee.” Even utilizing a
funded revocable trust with an institutional co-trustee that the athlete can replace at whim may
provide a professional trustee with experience dealing with those looking to take financial
advantage. If nothing else, merely the modest delay in time for the institutional trustee to
approve a distribution might provide enough “space” for the athlete to consult with advisers or
consider the impact of meeting a financial request of a family member, friend or other person.
Predators, Lawsuits and Other Legal Issues12
Every one of means should consider some degree of asset protection planning. At the simplest
level, a review of liability insurance may suffice. For other clients, especially as the clients move
up the wealth and vulnerability spectrums, more significant asset protection should be a standard
discussion. For the pro athlete, however, the risks of a lawsuit are exponentially greater than for
many other clients. And the risk is not merely the suit itself, but the leverage bad publicity or
social media coverage could entail.
Wealth and star power are magnets for legal entanglements. Predatory individuals pursue legal
actions against athletes in some instances merely because they believe that the athlete has deep
pockets, is a ripe target for litigation, and will have to protect endorsement contract
representations. The latter factor may provide the predator significant leverage to force a
settlement even if their claims are baseless. It does not take much sleuthing for a predator to
identify an athlete target; they simply have to see the billboards while they drive, turn on a
television, or follow a social media feed or follow up on viral video clips. Proactive asset
protection planning and involvement of trusted advisors in all meaningful decision-making can
help keep the athlete aware of the risks and monitor issues. This can facilitate involving litigation
counsel earlier in the process than might otherwise occur, which might alone mitigate damages.
But this process, just like using an institutional co-trustee to deflect unwise financial pressures,
will require an unpleasant and difficult adjustment process for the athlete client, but the results
may be financially life-saving.
Poor Investments
Athletes have often invested in business ventures such as restaurants, car dealerships, and
various entertainment companies that they did not have the business acumen to properly vet. The
results frequently have been a trail of financial disasters. Great sounding business ventures
outside the investor’s sphere of knowledge rarely turn profitable. In most instances the athletes
would be much better off investing in a more conservative and traditional manner. That might
mean a well-diversified securities portfolio with periodic rebalancing. If private equity or other
special investments are appropriate, they should be part of the overall asset allocation, limited to
a reasonable percentage of the athlete’s investable wealth, and should all be properly vetted by
the advisory team. In many cases, if the athlete desires to be involved in a particular industry or
asset class, there may be more widely held options that have baked into the transaction reporting,
etc.
No Financial Planning
12 See generally, K. Eli Akhavan, The Best Offense Is a Good Defense - A Primer on Asset Protection Planning for
Professional Athletes, 34 Entertainment & Sports Lawyer 19 (2018)
Since athletes often earn substantial money at young ages, they do not have the maturity or
experience to know how to spend prudently and plan for their financial future. While the
paychecks the athletes receive stop at their retirement, the monthly payments for lifestyle costs
and to creditors do not. Many athletes neglect to consider the long-term consequences of their
debt obligations, as well as the fact that the money that they earn during their playing career will
need to last them (and their family) for the rest of their lives. It is too easy to overlook the fact
that a personal guarantee signed at age 27 can very well be called by a creditor at age 47, well
after the athlete’s prime earning years have ended.
The athlete’s retirement stage may well last half a lifetime or more. Athletes, like all wealthy
individuals, must take steps to manage their monetary risks, such as safeguarding their fortune
where it will be free from various pitfalls. Many athletes simply do not know what they are doing
with their money and end up losing it all. NBA star Baron Davis summed it up best when he
said, “You get your paycheck, but you don’t get any instructions with it.”13 The end result is that
athletes are often forced to sell valuable items that represent priceless memories, such as World
Series and Super Bowl rings, Heisman Trophies, homes, cars, and anything of value for the sole
purpose of paying creditors. Those sales are highly unlikely to net anything near what was paid
to acquire the items but a short few years earlier. These adverse scenarios might be avoided by
taking proactive planning measures and putting safeguards on the athlete’s fortunes early on.
Comprehensive Wealth Planning for the Professional Athlete
Broad Based Planning Essential
Professional athletes, no different than most clients, require a broad-based approach to wealth
management, not merely investment planning or estate planning. But each of these basic areas
has to be tailored to the unique attributes of the professional athlete:
• Financial planning and investment management.
• Tax planning which should include state and federal income tax planning as well as
transfer tax planning.
• Asset protection which should including protection from divorcing and dissident spouses
or significant others, protection from lawsuits and claims, and steps to protect from the
predators, sycophants, and others that plague the professional athlete.
Creditor protection is also an essential part of the wealth planning process. However, it is often
the least addressed of the components. Creditor protection should be incorporated into all
business and estate planning and have an increased importance in the planning for the young and
vulnerable professional athlete. Failure to engage in creditor protection could prove to be the
undoing of the athlete’s seemingly solid wealth planning.
13 Paul Wachter, Pro Athletes, and Amateur Money Managers, Real Clear Markets, October 9, 2010.
http://www1.realclearmarkets.com/2010/10/09/pro_athletes_and_amateur_money_managers_106516.html
Athletes Can Be Protected with a Collaborative Team of Independent Advisers
The most important step for the professional athlete is quite simple but often the hardest to
absorb: he or she needs basic financial planning, especially a budget. This planning does not
require star-power advisers that have a stable of other well-known athlete clients. It requires an
estate and financial planning team that includes the essentials: an accountant, wealth manager,
estate planning attorney, and insurance consultant. The athlete will also need other specialists to
review, negotiate, and manage sports and endorsement contracts. Importantly, the independent,
non-star powered estate planning team provides the ballast to keep the pro-athlete safe and offer
a sounding board and system of checks and balances to help maintain a sound financial
foundation. This independent team can evaluate the performance and recommendations of the
athlete’s manager and other advisers. All of this can provide vital checks and balances and
reduce the risk of any renegade adviser being able to inflict material financial harm on the
athlete.
Too often athletes rely on a limited group of advisers who do not provide objectivity,
independence, and real concern for the athlete client. Given the high risk of predatory investment
partners, having an independent check and balance system is essential to the athlete’s financial
security. Furthermore, proper planning may well enable the athlete to pursue business start-up
dreams in a safer manner. If the athlete’s contribution to a proposed enterprise is his star power,
then others should be willing to invest the funds to get the business off the ground, or at least a
disproportionately larger amount of those funds then the athlete. It is not uncommon for a
promoter to seek to capitalize on the athlete’s star power, while also having the athlete finance
the venture. These types of ventures might be predators, and should be viewed with a great
degree of skepticism, and the advisory team should carefully scrutinize the proposal.
The added benefit of a strong financial team is that it can help the athlete adhere to the
formalities of the estate and business plans. Legal formalities must be adhered to for any plan to
succeed. If the athlete does not respect the structure of the estate or business plan, then the IRS,
creditors, and other potential predators will also disregard those plans. Athletes are generally less
inclined to be financially structured than businessmen who need structure to operate and employ
capable staff to maintain that structure. But for the athlete, no matter how well designed an estate
or business plan may be, failure to respect the formalities of that planning will result in failure of
the plan itself. The athlete must have a team to help him design, implement, and follow-up on all
aspects of the planning so that it can performs as intended.
Managing the Athlete’s Investments14
Athletes should begin building a core investment portfolio as early in their careers as possible.
This portfolio should be established before diverting funds to start-up businesses and other type
of ventures. The athlete should pursue a diversified portfolio of assets managed by an
independent institution or wealth management firm as the fiduciary. Regardless of whether
leveraging the athlete’s name and image into a new business venture may ultimately be worth the
risk, the reality is that mortgaging the athlete’s financial future by overcommitting to such
14 See generally, K. Eli Akhavan, Jonathan I. Shenkman, Don’t Drop the Ball, Trusts and Estates, March 2016.
ventures, or committing before a core investment safety net is developed, or guaranteeing debt to
start such a venture, is too likely to end in financial disaster.
If the athlete retains a quality advisory team, he or she can rely on their independence to
objectively evaluate options and make recommendations. This planning team of independent
advisers will provide a process that is more likely to stand the test of time. The investment plan
should address the following components: an appropriate time horizon and risk profile; tax
efficiency; liquidity needs; insurance protection, and creating additional streams of cash flow,
such as real estate, private equity, and perhaps appropriately vetted annuities for post-retirement
years.
• Time Horizon and Risk Profile. Practitioners must always consider: what is the
appropriate risk profile of the professional athlete’s portfolio? An athlete might have a
five-year estimated career path, with no assurance of a post-career income, so that he or
she might have to begin to draw on the portfolio for lifestyle expenses in year six. Thus,
the time horizon for even a young athlete might be much shorter than for the non-athlete
of a similar age. Oftentimes, the risk profile may have to be greater to reach the necessary
financial targets. The greatest risk might be a significant injury that derails the athletes
career before a sufficient financial safety net is developed. This is why a significant savings
rate and a controlled burn rate are so vital.
• Tax Efficiency. Athletes are typically in high tax brackets given their high earnings. Their
constant traveling for games often causes them to be hit with state taxes targeted at athletes
and performers, sometimes referred to as a “jock tax,” which further increases their tax
liability, discussed briefly below. When planning investments, serious consideration of
investments that can provide some tax relief may be warranted. Also, as athletes push to
build savings during what might be a limited duration high income career, those savings
might warrant being held in trusts to reduce or avoid state income taxation.15 It is vital for
the athlete to have a tax adviser that understands the nuances of advising athletes who often
become akin to “entertainment brands.” A state and local tax (“SALT”) expert is perhaps
necessary. Identifying expenses that may be deductible by the athlete that might be missed
without adequate attention.
• Lack of Liquidity. For many clients, assuring adequate liquidity is an important
component of every financial and estate plan. For the athlete, especially during high income
career years that should be marked by the accumulation of significant financial reserves
for post-career lifestyle costs, avoiding liquidity to safeguard savings from many of the
risks (e.g. predators) discussed above, may prove to be an advantage. Liquidity is an issue
that is particularly important to athletes who too often spend well beyond their means. If
an athlete’s investments are illiquid, the likelihood of these assets being depleted very
quickly or being used for poor investment decisions is minimized. For the spendthrift
athlete, investments to consider for this purpose might include insurance products,
annuities, and alternative investments with a long initial holding period. The inherent costs
and restrictions on liquidation entailed with these products may provide a forced discipline
15 See Blattmachr and Shenkman, “State Income Taxation of Trusts: Some Lessons of Kaestner,” Estate Planning,
October 2019, page 3.
to the athlete. While many investment advisers might express dismay at the above
discussion, the point should be to plan in a manner that is most advantageous for the
particular client, not merely adhere to standard asset allocation mantra. None of this is to
suggest that advisers permit an athlete client to purchase or invest in products that are
unreasonably costly or have poor performance. The point is that for the young professional
athlete, the suitability of a particular investment may be positively impacted by the
difficulty the athlete will have accessing that asset prior to retirement, or even longer. This
type of investment planning, however, will have to pass muster under the DOL fiduciary
rule.
• Additional Streams of Income.16 While some athletes’ careers have flourished after
retirement from pro sports, many others struggle to find ways to earn a livelihood. If the
advisor can recommend investments that will not only appreciate in value, but can also
provide a source of cash flow or even employment, this may be essential to help the
athlete maintain the lifestyle to which they have grown accustomed to. Options include
real estate, private equity, and annuities. Both areas require hiring an experienced
manager but can benefit the athlete for a longer timeframe.
o Real Estate. Real estate has long been an attractive asset class for investors.
From a tax perspective, the owner of real estate has a myriad of tax deductions
from which to benefit, including expenses such as mortgage interest, property tax,
operating expenses, depreciation, and repairs for the rental of a dwelling unit.
One can also deduct costs associated with maintaining the property, including
advertising, maintenance, utilities, and insurance.17 Another benefit is the lack of
liquidity. Generally, selling real estate can take time, effort, and money. This
process gives the athlete more time to reconsider a bad financial decision.
Athletes who invest wisely have experienced great success in the real estate
market. For example, Hall of Fame basketball player Hakeem Olajuwon made a
fortune in his career and even more money in the Houston real estate market. He
purchased and flipped several properties, but also invested in several buildings
that provided consistent cash flow. Olajuwon is a devout Muslim which has
limited him to only using cash for his deals since Muslim law forbids him from
charging or paying interest.18 This has worked to Olajuwon’s advantage because
it allows him to move quicker than other buyers and he does not have a bank loan
hanging over his head pressuring him to make decisions.19
16 See generally, K. Eli Akhavan and Jonathan I. Shenkman, Planning for the Stars: Financial and Investment
Planning for Entertainers and Professional Athletes, Tax Stringer, January 2017 and February 2017. 17 Tips on Rental Real Estate Income, Deductions, and Recordkeeping. Internal Revenue Service, February 9, 2016.
<https://www.irs.gov/Business/Small-Businesses-&-Self-Employed/Tips-on-Rental-Real-Estate-Income-
Deductions-and-Recordkeeping>. 18 For a discussion of how alternative structures can be used in real estate and business transactions yet still comply
with Sharia law see: Shenkman “Integrating Religious Considerations into Estate and Real Estate Planning,” Probate
and Property March/April 2008, page 34. 19 Kate Murphy, A Slam-Dunk in Houston Real Estate. The New York Times, December 6, 2006.
<http://www.nytimes.com/2006/12/06/realestate/commercial/06houston.html>.
o Private Equity. Private equity (PE) is a type of investment that is made in a
company that is not publicly traded. PE professionals will take several years to
restructure a company and then eventually sell it or take it public to make a profit
for their investors. If the PE firm holds the companies for a number of years,
these restructured companies can provide healthy cash flows to the investors.
These cash flows can be favorably taxed if the athlete is a partner in the deal
because of the “carried interest” tax benefit. Carried interest is profit made by the
partnership, which is taxed at approximately 20% versus up to 39.6% for income
and wages. Athletes are no strangers to private equity. Steve Young, former Hall
of Fame quarterback for the San Francisco 49er’s, joined a private equity firm
once he retired from professional football. He then partnered with a former Bain
Capital executive to start their own private equity firm.20 Similarly, All-Star NBA
center David Robinson founded the private equity firm Admiral Capital, which he
runs together with a former Goldman Sachs executive.21
o Annuities. Another way to supplement an athlete’s savings and income during
retirement is the use of annuities. Beneficial features of annuities for athletes
include the forced savings aspect, tax-deferred growth, and the ability to offset
risk to an insurance company. Lack of liquidity for the annuity funds is an
additional benefit. An annuity provides a safeguard to overspending since it ties
up the owner’s money for years and is much less accessible than other
investments. There are two basic types of annuities:
▪ Deferred Annuity. This type of annuity requires initial investments from
the buyer but does not pay out until a future date and thereby can serve as
a savings tool. That savings, in a properly structured product can permit
the athlete to save money on a tax-deferred basis. There are no generally
income limitations or maximum contribution allowances. Furthermore,
the owner can offset the market risk by selecting a fixed rate of return
instead of being subject to market fluctuation.
▪ Immediate Annuity. This type of annuity may be an option for an athlete
to guarantee an income stream for the rest of his or her life. Thus, an
immediate annuity might make more sense for the athlete client to
purchase near retirement with liquid funds that he or she might otherwise
be tempted to spend. These types of annuities have many options,
including the ability to defer payments for a period of time, extend
payouts for the life of both the owner and their spouse, and to have
beneficiaries receive payments.
20 Ron Lieber, Financial Lessons from Sports Stars’ Mistakes, The New York Times, September 9, 2011.
<http://www.nytimes.com/2011/09/10/your-money/financial-lessons-from-sports-stars-mistakes-your-money.html.> 21 Kiel Porter, David Robinson’s Admiral Capital Group to Acquire Tecmotiv, Bloomberg News, July 31, 2019.
<https://www.bloomberg.com/news/articles/2019-07-31/david-robinson-s-admiral-capital-group-to-acquire-
tecmotiv-corp>.
One complication of annuities as it relates to athletes is the penalty imposed for
withdrawing funds before the owner turns 59 ½. Since professional athletes stop
competing at the highest level at young ages, e.g. by their mid-30s, there is a
significant gap between an athlete’s retirement age and when they can technically
start receiving income payments without paying a penalty. Fortunately, there are
exceptions allowed which allows early withdrawals from annuities and other
types of retirement accounts.22
One such exception is to receive income as a series of “substantially equal
periodic payments.” To qualify, the owner must receive a series of income
payments that are calculated based on their life expectancy utilizing the Life
Expectancy Method, Amortization Method, or Annuitization Method. These
payments must continue annually for five years or until the age of 59 ½,
whichever is longer. Payments may be stopped after this time if desired.23
Some permanent high cash value life insurance policies may offer benefits in a similar vein, but
these, as with the annuities, must be properly vetted to be certain that they make sense for the
athlete’s circumstances, have reasonable anticipated performance (which must be monitored in
future years) and acceptable cost structures.
Tax Planning for the Athlete Gift Taxes
The high-earning athlete often faces unexpected gift tax problems. The entertainment and sports
news programs routinely have stories of athletes who, shortly after signing a substantial contract,
announce that they are buying a home for their mother, cars for friends, and more. Athletes also
often give large amounts of cash as gifts.
To the extent that the gift exceeds the annual gift tax exclusion $15,000 (2019) per person, that
gift is taxable and will reduce the athlete’s lifetime gift exemption. Proper planning may reduce
or eliminate this gift tax problem.
It may behoove the young athlete to take a significant portion of a windfall or other large early
payment and immediately gift it to a trust that can provide asset protection, difficulty reaching
the asset for current expenditures (e.g. the approval of an institutional trustee’s distribution
committee), and to safeguard it from the pressure of family members or others wishing to ride
the athlete’s success. But this might require action prior to the 2020 election. Proposals to change
the transfer tax system have included the potential reduction in the annual gift exclusion from the
current 2019 amount of $11.4 million only $1 million and capping annual gifts at a mere $20,000
per year per donor. That is a pittance compared to what many taxpayers can gift under the
current $15,000 per year per donee. If the administration changes in 2020 or after these types of
changes could be enacted. Thus, many athletes should carefully evaluate making gifts now
before such changes might be enacted.24 If, for example, an athlete has a current irrevocable life
insurance trust funding that trust might prove problematic if such a law were enacted. It might be
22 Code Sec. 72(q)/72(t). 23 72(q) & 72(t) Distributions, Annuity Financial & Insurance Services, Inc., September 23, 2012.
<http://www.annuityadvisors.com/reference/detail/72q--72t-distributions?refid=67>. 24 Shenkman, Tietz, and Blattmachr, “The Bernie Sanders Tax Proposal – Might it Foreshadow Future Democratic
Proposals,” Leimberg Information Services, Inc. Estate Planning Newsletter No. 2715, April 4, 2019.
prudent to fund the trust now with sufficient cash and investment assets to cover insurance
premiums for many years to come.
The above types of trusts or transfers might be made to a trust that is currently a dynasty trust to
benefit a spouse, descendants, perhaps parents, etc. Since the athlete who makes the gifts may
need access to the assets given in a future year, the trust might be structured as a dynastic trust
that has various provisions that might permit the athlete to access the wealth or benefit from it in
the future. These might include:
• A hybrid DAPT provision. This might grant to a persona in a non-fiduciary capacity the
right to add descendants of the athlete’s grandparents as beneficiaries to the trust. That
could include the athlete. Thus, the trust is arguably not characterized as a self-settled
trust under current law so that the risks some perceive with that type of technique might
be avoided.25
• A special power of appointment trust (“SPAT”) provision might be included. This might
provide someone in a non-fiduciary capacity the power to direct the trustee to make
principal distributions to the athlete. That mechanism arguably also avoids
characterization of the trust as a self-settled trust. The SPAT involves the creation of an
irrevocable trust for beneficiaries other than the grantor, in which a named individual (or
several individuals as a sort of committee, the powerholders), is granted a lifetime limited
special power of appointment, an LPOA, held in a non-fiduciary capacity.26
• A loan provision may provide the athlete access to the funds. But note that a loan
provision may characterize a trust as a grantor trust and that may be inconsistent with the
athlete creating a non-grantor trust that might facilitate saving state income taxes on trust
earnings.27
Estate Taxes
Most clients undertaking a comprehensive plan have traditionally focused on minimizing future
estate taxes. The considerations facing the athlete present a significant shift in the tax planning
mindset. No matter how fiscally savvy the athlete, it is not reasonable to expect a 20-year old
client to place much priority on possible estate taxes to be incurred more than a half-century in
the future. Rather, the immediate concern for many athletes is running out of money. However,
overall asset protection and other planning remains important to their estate tax planning. That
being said, the prospect of the estate tax exemption being reduced to $3.5 million should
nonetheless motivate wealth athletes to take some planning steps near term. Also, the funding of
appropriate crafted irrevocable trusts, that may permit the athlete to benefit from the trust in
future post-retirement years as discussed above, can permit even a young athlete to safeguard
assets thereby obtaining important asset protection benefits, retain the potential for access or
25 For a discussion of self-settled trusts see: Blattmachr, Blattmachr, Shenkman and Gassman, “Toni 1 Trust v.
Wacker – Reports of the Death of DAPTs for Non-DAPT Residents is Exaggerated,” Leimberg Information
Services, Inc. Asset Protection Newsletter No. 362, March 19, 2018. 26 O’Connor, Gans & Blattmachr, “SPATs: A Flexible Asset Protection Alternative to DAPTs,” 46 Estate Planning
3 (Feb 2019). 27 Lipkind, Shenkman, Blattmachr, “How ING Trusts Can Offset Adverse Effects of the Tax Law – Part 1,” Trusts
& Estates, September 2018, page 26.
benefit from those assets, all while accomplishing estate tax minimization benefits that may not
be currently uppermost in mind.
Income Tax Planning Generally
Minimizing income taxes during the high earning years and protecting those net earnings for the
future (the asset protection component of the athlete’s plan) should be a primary focus.
Current income tax savings for the athlete will often be the starting point of income tax planning.
Minimizing what will undoubtedly be a substantial income tax is often critical. A popular step is
to create an entity that will enable the athlete to use a qualified retirement plan. Consider that
although the average NBA player’s career lasts only 4.8 years, he will earn about $24.7 million
over this span. Advisors have the task of making these few years of earnings last through what
will likely be a very long retirement.
State Income Tax Planning
State tax savings is a critical planning issue for the athlete. A pro-athlete’s domicile plays an
important part in his planning. A pro-athlete can be born in one state, play professional sports in
another state, reside in the offseason in yet another state, and finally spend his retirement in a
completely different state. Each of these jurisdictions may compete for the athlete’s income and
estate tax dollars. For example, for income tax purposes, many states impose taxes on athletes
for the “duty days” they compete in that state, even if the athlete is not domiciled there. Given a
sufficient nexus to a state, the state may claim that the pro-athlete was the domicile of that state.
Accordingly, a pro-athlete’s advisor must clearly state the domicile of choice. This requires
making sure that the pro-athlete satisfies the different domicile factors specific to that state, such
as having a primary residence, filing affidavit of domicile with the appropriate county clerk, and
registering to vote. A partial list of factors to consider might include:
• The athlete should maintain a safe deposit box in the intended state of domicile but not
elsewhere. However, in light of publicity and other concerns, it might be worth
considering creating a home state LLC to own the box instead of the athlete directly.
• Social media postings should not contradict the stated tax position that a particular state I
home.
• Religious affiliations should be maintained in the intended home state.
• Consider the impact of the laws of the selected domicile on a spousal right of election and
other ancillary factors.
• Tax reporting should be consistent with the legal position taken as to domicile.
• Voter registration and voting in the state of intended domicile. This might be considered
even if it requires that the athlete fly back to the home state to vote and fly out the same
day to meet training or other commitments.
• Will and estate planning documents should be executed in the state of intended domicile
and recite that the athlete is domiciled in that state.
State tax planning must also address in detail how earnings should be allocated to the activities
that occur in different states (e.g., games, training time, event appearances, etc.).
Advisors must also be aware of which states have a history of aggressively taxing income from
athletes. For example, Nat Moore, a wide receiver for the Miami Dolphins, went to Buffalo, New
York for one day to play the Buffalo Bills. New York audited Moore’s tax return and took the
position that since he played 16 games in a year, his salary should be divided so that 1/16th of his
income should be taxable in New York because he played 1/16th of his games there. Needless to
say, Moore fought the tax authorities, but a New York court sided with the state. The takeaway
less is that while planning may not protect always protect game-day salary, ancillary income can
and should be protected.28
Asset Protection Planning for the Athlete
An athlete’s planning should be broad based and address a range of goals including: estate tax
exposure (whether under current tax rules, or, as discussed above, under future possible changes
if there is a change in administrations in Washington), minimizing probate costs and the
publicity of a public probate, protecting the client during times of incapacity (which is a
substantial risk for the athlete), income and transfer tax planning, and asset protection. All of
these goals should be pursued while keeping an eye towards appropriate levels of control and
flexibility. The following are considerations athletes might take under advisement in terms of
asset protection:
• Assets protected under home state law. If the athlete’s home state excludes certain
assets that might be useful to consider in determining investment decisions. For example,
Florida has long been known for its robust homestead exemption. In a recent case a
trustee’s purchase of annuities resulting in safeguarding all of the trust’s assets from
creditors when the court pierced the trust.29 If this type of planning is considered, it might
be first advisable for the athlete client to endeavor to corroborate that domicile is
supported in that particular state. As discussed above, many athletes travel extensively,
have property holdings in multiple states, etc. so that the delineation of which of several
states is that athlete’s domicile, may not be as clear as for other clients.
• Control the ownership of property. The ownership structure for the athlete’s property
must be addressed to achieve asset, tax, and privacy protection (recognizing the
limitations and difficulties of achieving privacy in the current environment). Investments
should be isolated in separate entities, such as LLCs. For example, if the dollar values
justify it, marketable securities may be held in an investment LLC. That should be
separated from real estate and private equity transactions which may each be held in a
separate LLC. Even if the underlying business or real estate investment is in an LLC, the
athlete might prefer to have his or her own LLC own his interest as that might provide
additional protection if the underling business or property entity is not maintained with
all appropriate formalities. It might also provide more flexibility to facilitate future asset
protection transfers. For example, it may be feasible for the athlete as wealth rises to
transfer a private LLC to a family trust without the necessity for a new approval from the
underlying property or business entity. While the aforementioned may be common for
28 See generally, K. Eli Akhavan, Legal Gaga, Trusts and Estates, February 2012. 29 Gasman, Shenkman, Dickson, “In Re Rensin – How One Man’s “Hippo” cracy Might Change Offshore Trust
Planning Forever,” Leimberg Information Services, Inc. Asset Protection Newsletter No. 390, August 26, 2019.
non-athlete clients of means, endorsements likely represent a category that is more
unique to athletes and others with star power. Endorsement arrangements might, if
permitted pursuant to the contractual arrangements with the product company or other
third parties, be isolated in separate LLCs or other entities. The LLC’s interests in turn
are owned by various trusts designed to meet different planning objectives. Enhanced
protection from creditors may be obtained by domiciling each entity in a state that has
superior creditor protection statutes. For example, some states provide only a “charging
order” as the exclusive remedy for creditors and insulate single member LLCs from
creditor attack.
• Plan the use of property. If the athlete heeds the advice above, he or she is likely to
have significant assets held in various LLCs, other entities, contractual arrangements,
and a variety of trusts. For an asset such as a personal residence, the ownership structure
will have to permit use of the property. While tenants by the entirety of a primary
residence may provide a measure of protection under some state laws, not every state has
such ownership possibilities. Tenants by the entirety is a special form of joint ownership
of an assets (some states restrict its use to a residence; other states do not restrict it in that
manner). Even if tenants by the entirety is permitted, it may not be the ideal approach.
For example, it might be preferable to have an LLC formed in a favorable jurisdiction
(see preceding bullet point) using a name that perhaps has the property address in its title
rather than using the athlete’s name. While that might only provide a modicum of
incremental privacy, even that modest additional privacy may be worthwhile. The house
LLC, with an appropriately crafted operating agreement that reflects the unique LLC
asset, may in-turn be held by one or more irrevocable trusts of which the athlete and/or a
spouse are beneficiaries, thereby permitting continued use. That may provide an
additional measure of asset protection (especially if tenants by the entirety is not
available in that jurisdiction or if the athlete is not married). That same plan can also meet
estate tax planning goals.
• Plan the use of income derived from property. The typical client tends to focus on
having access to the cash flow (different from “income” as most laypeople perceive the
term) from their assets. However, the pattern for athletes is different. The initial
earnings window has high wealth accumulation and often does not require additional cash
flow. Then, when the athlete retires, there will likely be variable needs for cash flow. For
example, initially the athlete’s endorsement income may be sizeable. As endorsements
wane as the athlete gets older, a more significant cash flow may be required. Irrevocable
trusts, in trust friendly jurisdictions (e.g. one of the 19 states permitting self-settled
trusts), with an institutional trustee having complete distribution discretion, may provide
a higher level of asset protection then other trust structures, and also provide the
flexibility to meet each athlete’s somewhat unique cash flow pattern as described above.
• Control bequests. All clients, including athletes, hope to bequeath property to
whomever they want, whenever they want, however they want. As noted above in the
discussion of tax planning, the relative youth of athletes tends to make bequests a lower
priority and the foremost concern must be assuring adequate financial resources for the
life of the athlete before even considering bequests to children or heirs. Given the risks of
divorce, potential children out-of-wedlock, uncertain or variable financial situation, etc.
the judicious use of lifetime limited powers of appointment and decanting powers in
irrevocable trusts may add an important element of flexibility to effectively restructure an
irrevocable trust to remain appropriate for the athlete and family as circumstances evolve.
• Protect assets from lawsuits using trusts. Professional athletes generally have highly
visible public profiles. Their contracts and salaries are often public information, making
them attractive targets for lawsuits. Accordingly, pro-athletes should, as much as is
practicable, structure their estate so they do not hold direct title to assets.
For example, the athlete may opt for a creative use of life insurance to grow cash value
policies inside the protective envelope of an irrevocable life insurance trust. For an
athlete who seeks heightened protection from liability but does not wish to relinquish the
right to benefit from his hard-earned assets, an advisor may recommend a domestic asset
protection trust (DAPT). There are now 19 states that have enacted legislation permitting
these self-settled trusts. The athlete can transfer his assets to the DAPT and remain a
discretionary beneficiary of the trust, while still protecting the assets from suit by non-
exception creditors. Additionally, if the DAPT is structured properly, the DAPT’s assets
will not be included in the athlete’s estate. Practitioners must be fully aware of their
respective jurisdiction’s approach to DAPTs when considering this kind of planning for
the athlete. Several variations or options such as the hybrid DAPT and SPAT were noted
above.
Insurance Planning for the Athlete
Disability Insurance
Bo Jackson, a former three-sport athlete in college and all-star in both the NFL and MLB, is
living proof that even the most talented athletes can have their careers derailed by an injury. In
1991, a hard tackle dislocated Jackson’s hip and he never fully recovered. He was forced to end
his football career after only four seasons and played just two more years in MLB before
retiring.30 Disability can be devastating for a pro-athlete, whose livelihood is based on being in
top physical condition. An injury can cause the athlete’s income stream to greatly diminish or
evaporate. There are various ways to help protect against the loss of income at different points
during the athlete’s career.
Before the athlete goes pro, a disability policy should be considered through the “Exceptional
Student-Athlete Disability Insurance Program”, which was established by the NCAA in 1990.
This program is geared towards student athletes that expect to be drafted within the first three
rounds of their respective sport. The coverage offers up to $10 million for a highly touted
basketball or football college player. This type of disability insurance protects athletes in the
30 Jack Andrade, 11 Athletes Whose Promising Careers Were Derailed by Injuries, The Boston Globe,
March 6, 2015. <http://www.boston.com/sports/2015/03/06/athletes-whose-promising-careers-were-derailed-
injuries/aedfCzaMyhj4P1uICv3SfP/story.html>.
event their careers end by injury while still in college. Once a student athlete is approved for this
program, they will automatically be eligible for a loan to help pay for the policy.31
Another type of income protection is loss-of-value insurance that a college can purchase on
behalf of the athlete. This type of insurance is purchased in order to entice the athlete to continue
to play for the university and refrain from leaving college early to enter the draft. Should the
athlete experience an injury in college, this type of policy will compensate for the likely future
earnings that are lost due to the injury.32
Once the athlete enters the professional level, a specialized high limit disability policy should be
considered. Advisors must find specialized high limit coverage, which can protect against both
career-ending and temporary disabilities. It is important to evaluate for the athlete an “Own-
Occupation” rider on the policy, if available and not cost-prohibitive. This rider may protect the
athlete from not being able to perform the duties of his or her sport. For example, the disability
policy of a professional football player who can no longer play football, but can still work as a
studio commentator, should be triggered to replace some of the injured athlete’s loss of income.
Life Insurance
A life insurance policy should be relatively inexpensive if purchased when the athlete first
embarks on their career because of the professional athlete’s young age and superior health. Life
insurance, other than term life insurance, has two distinct components: the “death benefit”; and
the “inside build-up,” or investment component, which grows in a tax-free manner like a
qualified retirement plan. Both elements may provide benefits for the athlete. Without life
insurance, if the athlete dies prematurely his or her family may face economic insecurity,
especially if they have become dependent on the athlete’s high earning power. In addition, many
athletes have outstanding debt obligations, such as a large mortgage, as a result of leveraging
their many assets. Typically, those debts generally are not extinguished on death. In fact, death
may be a term of default and accelerate the problems faced by the athlete’s heirs. Life insurance
can provide the athlete’s loved ones with sufficient funds to satisfy theses outstanding debts.
Another key feature of a life insurance policy is giving the athlete a regular “bill” to pay, which
can help instill the discipline to set aside money and not spend it all. Well-planned life insurance
can play a significant role in mitigating these problems. Additionally, the safety feature of the
policy may be a reliable source of funds for the athlete when other investments are losing value.
Careful consideration should be given to the terms of the policy or policies selected. The unusual
needs of the athlete client might be better met with several different types of coverage. Perhaps a
large term policy can provide extra coverage for young children that might not be needed further
into the future. Yet a separate term policy might be purchased to specifically address
requirements in a prenuptial or other contractual arrangement. A higher cash value policy may be
part of an overall investment/savings plan as that might provide asset protection as well as a lock
up of excess cash that might otherwise be spent.
31 Student-Athlete Insurance Programs, NCAA.org. <http://www.ncaa.org/about/resources/insurance/student-
athlete-insurance-programs/>. 32 Marc Tracy, Insurance Doesn’t Eliminate Risk for Top College Athletes Who Forgo Draft, The New York Times,
May 8, 2015. <https://www.nytimes.com/2015/05/09/sports/ncaafootball/insurance-doesnt-eliminate-risk-for-top-
college-athletes-who-forgo-draft.html>.
Trust Planning for Athletes
Several important trust planning concepts for the athlete client have been discussed in preceding
sections of this article. There many different variations of trusts that can be used to accomplish
different financial goals. Many practitioners often seize on the use of a particular type of trust for
a particular purpose. However, to protect the athlete, employing a variety of different trusts will
often provide a better solution. As with all clients, these trusts should be tailored to the athlete’s
particular circumstances.
As explained above, athletes typically face unique challenges to their asset protection, tax, and
other planning. But the athlete client is not a uniform planning challenge. There are considerable
differences in how planning for different athletes should proceed based on the level of wealth
already accumulated, the nature of the assets involved, and other factors.
A threshold concept that most athletes will need to have explained is that owning assets in trusts
will generally be preferable to owning those assets outright because of the unique challenges the
athlete faces. Properly drafted, trusts can be powerful mechanisms to address many of the
financial and legal risks facing athletes.
The ILIT vs. the DAPT
One of the common irrevocable trust that estate planners draft is the Irrevocable Life Insurance
Trust (ILIT). A well-funded mix of permanent life insurance policies with top quality companies
inside an ILIT may be an ideal component of the planning for athletes. This strategy provide the
following benefits to the athlete and family. It may safeguard cash that might otherwise be spent;
providing a conservative investment return on those funds that compares favorably to what most
athletes achieve on their own. It might assure some asset value for the heirs if the athlete spends
down his or her entire estate in post-retirement years.
As a strictly defensive tool, the ILIT is often an excellent option for the athlete due to the risks of
death due to a sports accident or the other risks fame may bring (consider Steve McNair’s
unfortunate situation). Be aware that in an industry where the professional athlete is taught that
he or she is invincible, compounded by a young age for many, might make life insurance a
difficult investment to convince the athlete is appropriate.
As discussed above, another option is a self-settled Domestic Asset Protection Trust (DAPT).
DAPT funding can come from the athlete making complete or incomplete gifts. Under a
completed gift, the athlete transfers assets to the DAPT using some portion (or all) of the current
$11.4 million gift exemption. Under this transaction, the athlete realizes the statutory benefits
afforded by the DAPT and the transferred assets are outside of the athlete’s taxable estate.
Conversely, a gift to a DAPT is deemed incomplete if the transferor retains certain interests such
as the ability to change the beneficiary of the gift. In this scenario, the athlete could simply
transfer assets into the trust and gain the statutory protections offered by it.33 The most
33 Athletes, due to the nature of their work, often have contact with numerous jurisdictions. If there is any doubt that
the athlete does not have strong connections to a strong DAPT state, it may be advisable to insulate such a trust with
one (or even two) LLC’s organized in that jurisdiction. In doing so, the athlete gains stronger contacts with that
significant drawback to an incomplete gift is that assets will not be removed from the athlete’s
taxable estate.
But too often practitioners, athletes or other advisers focus on common trust techniques or title
rather than on combining various trust attributes into a trust tailored for the particular athlete.
Thus, a hybrid DAPT might be created that also has provisions for life insurance. If the power to
add the athlete as a beneficiary in the future is considered, prior to the powerholder exercising
that limited power the trust might first be bifurcated into two components. The life insurance
may, and all other assets not used in the second trust, might be held in one new trust. Only the
investment or other non-life insurance assets that are necessary to provide the needed cash flow
to the post-retirement athlete may be segregated in a second trust to which the powerholder adds
the athlete as a beneficiary. That might insulate the portion of trust corpus to which any
perceived DAPT liability may attach and avoid the insured/athlete being a beneficiary of a trust
that owns life insurance. An advantage that might be afforded initially is that the investment
assets might generate the cash flow to pay insurance premiums pre-division.
Beneficiary Defective Irrevocable Trust
The beneficiary defective irrevocable trust (BDIT) may prove the optimal technique for some
athletes’ planning. This trust could enable the trustee to buy gifts for family and friends, without
triggering gift tax issues. A BDIT may help the athlete transfer assets outside of the transfer tax
system. However, as with each planning tool and technique discussed in this article,
modifications to a BDIT may be needed to tailor it to the needs of the athlete. To illustrate how
best to structure a BDIT for an athlete, an overview of a more typical BDIT plan will be
presented along with modifications and issues to address for athletes.
• Typical BDIT Plan. A third-party (most commonly a parent) establishes the BDIT for
the benefit of the client. Because the parent is the settlor of the trust, the BDIT provides a
greater measure of asset and estate tax protection for the client, because the client is not
establishing the trust for himself or herself. Thus, it may be argued that the BDIT is not a
self-settled trust. The BDIT grants the client the right to withdraw the gift (commonly
called a “Crummey Power”). This withdrawal right results in the client being
characterized as the “grantor” of the BDIT for income tax purposes.
The trust should thus be taxed for income tax purposes to the athlete beneficiary while
the Crummey power is in effect.34
When the Crummey power lapses the trust should continue to be taxed as a grantor trust
as to the beneficiary. 35
The trust is funded with a single gift from the parent, friend or other benefactor of
$5,000. In this way, all assets contributed by the parent or other benefactor will lapse
under the 5%/$5,000 lapse limitation of Code Sec. 2514 to avoid characterization as a
general power of appointment. Since the lapse is not in excess of the 5/5 rule, it should
not be treated as a release of a GPOA, but merely a lapse.
jurisdiction and also benefits from the protections afforded by the LLC, in addition to those afforded by the trust
itself. 34 This should occur under Code Sec. 678(a)(1). 35 This may occur, according to some practitioners, under Code Sec. 678(a)(2).
Some commentators suggest that the BDIT include a power to withdraw under a health
education maintenance and support (“HEMS”) standard. A power limited by a HEMS
limitation cannot be a general power of appointment.36
Therefore, because the BDIT is treated as a grantor trust to the client, the client can sell
appreciated assets to the trust without triggering capital gains tax exposure. The BDIT
may provide the client a note for the purchase price of the asset. Since the trust has only
very modest assets a guarantee would have to be provided to support the trust
consummating the purchase. Some commentators have expressed concern that this
structure may present risks. Any appreciation in the value of the asset after the initial sale
would be outside the client’s estate, thus freezing the value of what can be taxed in the
client’s estate.
The income and growth in assets inside the BDIT can benefit the client and all future
descendants while never being subject to estate, gift, and GST taxes, simply because the
BDIT was funded by someone else. Furthermore, the assets may be beyond the reach of
creditors even though the athlete has the substantial use, enjoyment of, and reasonable
control over, the trust assets.
Additionally, with a BDIT, the client can be given a limited power of appointment to
designate who will ultimately receive the assets in the trust at death. The ability to defer
the decision as to who receives the property, and how they receive it (preferably in a
continuing trust), is an important benefit for anyone. For an athlete, because of the youth,
immaturity, and significant uncertainty as to the family and financial future, this benefit
is rather important.
• Athletes and BDITs. There are several special considerations regarding athletes. Given
the unique social pressures described above, an athlete should not serve as his or her own
BDIT trustee. The trustee should be an objective person, independent of the athlete, who
can refuse a request for a distribution from a family member or other person. An
institutional trustee who will adhere to trust formalities, have distribution requests
evaluated by a professional distribution committee, and which may provide situs in a
jurisdiction with favorable income tax and legal environments, may be ideal.
In addition, remember that this type of trust must be funded by a third party, and not
reimbursed either directly or indirectly by the athlete. The athlete’s family may not have
the financial wherewithal independent of the athlete to make the gift to fund the trust and
may not understand the planning. If so, perhaps the parent may be legitimately employed
in one of the athlete’s businesses, to earn the funds needed to initially fund the trust.
Alternatives to funding by a family member may include a caring teammate, or a mentor
from college years who may still be operating in a guidance capacity for the athlete.
• Example of BDIT for an Athlete Client. The BDIT can be a powerful planning tool for
an athlete. Assume that the athlete earns $6 million in annual salary. Capitalizing on his
good reputation, this athlete is earning an additional $4 million annually through business
36 This HEMS withdrawal power might continue grantor trust status because under Code Sec. 678(a)(1) “such
person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself.”
ventures. The athlete’s total income is $10 million, but he is trapped in a 40% tax bracket
that results in his annual payment of $4 million in individual income tax.
Assume further that rather than owning his business ventures outright, the athlete owns
these business ventures inside a BDIT that was initially seeded with the benevolent gift
from his college football coach. The athlete can maintain control of these investments,
and can retain broad power to hire and fire those who will manage these investments for
him.
In a second BDIT, the trust owns cash value life insurance on the life of the athlete. The
trust names an independent trustee, but the athlete is provided the ability to fire that
trustee and replace with an independent bank or trust company with a predetermined
minimum of assets under management. This policy could be funded by the athlete using,
a percentage of salary over the course of his career. As explained above, this type of
committed routine investment may provide important discipline and assure assets are set
aside for the future.
• Result. As a result of this planning, the athlete may realize a number of benefits. First,
his business ventures will be sheltered from his personal creditors. The taxes from these
ventures will be paid from the athlete’s otherwise unprotected (from claimants) liquid
assets. These assets were also included in the athlete’s taxable estate, so paying taxes on
trust income will reducing his estate over time. The businesses, however, may hopefully
grow without reduction by income taxes. This growth all accrues outside of the wealth
transfer system. Eventually, the restaurants, car dealerships, and consulting ventures can
be transformed into more traditional investments and passed on to future beneficiaries
without the imposition of transfer taxes.
Trust Drafting and Structuring Considerations
The following are drafting tips and structuring ideas that are especially pertinent for athletes:
• Institutional Trustee. As discussed above, give consideration to using institutional
trustees to increase the likelihood of trust formalities being adhered to, benefiting from
trust friendly jurisdictions, and protecting the athlete from predators.
• DAPT Jurisdiction. Consider forming the trust in a DAPT jurisdiction if the athlete’s
home state is not a DAPT jurisdiction, to perhaps provide additional protection.
• Quiet Trust. A “quiet” trust is one for which disclosures of information concerning the
trust don’t have to be made. This is especially appealing for athlete clients, so that
potential beneficiaries do not see statements that reflects the many millions of dollars in
the trust. Disclosures, even to named beneficiaries, might have adverse consequences.
Another option is limited disclosures until a beneficiary attains a specified age. The
Uniform Trust Code Sec. 813 requires keeping qualified beneficiaries reasonably
informed and Sec. 105(b)(8) prohibits waiving the duty to inform qualified beneficiaries
over 25 years of age. States have adopted a myriad of variations of this rule. This entire
area law is evolving in many jurisdictions. The athlete might benefit from establishing all
trusts in jurisdictions that permit the trust to limit or prohibit disclosures.
• Multiple Trusts. As mentioned above, while many wealthy clients rely primarily on a
single type of trust, such as a BDIT, athletes will generally be best served by having a
several independent trusts. The risks of lawsuit, media scrutiny, opportunists, and
frequency with which athletes’ own advisors have taken advantage of them, all suggest
that having several independent trusts might insulate each trust’s assets from issues that
could infect other trusts. Using different trusts in different trust friendly jurisdictions may
make the structure more complex, but also may serve the asset protection and other goals
and objectives discussed above.
• Entities. Consider two tier structures with assets held in LLCs which are then held by
various irrevocable trusts, perhaps even with non-controlling interests in each trust to
fractionalize ownership for asset protection purposes.
• Control. As discussed above, an institutional trustee is recommended, and although some
commentators illustrate BDITs with the beneficiary serving a trustee, this may not be
prudent for the athlete client to do. A trust protector might be given the power to replace
the institutional trustee and to also change situs and governing law to facilitate naming a
replace trustee in a different jurisdiction.
Timing Transfers
Many clients delay implementing estate and asset protection planning. For all clients this could
be a costly mistake and opportunity lost if an intervening Democratic shift in power in 2020 or a
later year results in an unfavorable adverse overhaul of the transfer tax system. Athletes have
even more to lose by waiting to plan because their earning potential is high for a very short
period of time. There is benefit to capturing this potential at the right time. For example, if it is
feasible to transfer the athlete’s current and future marketing rights into an irrevocable trust
before the athlete’s career takes off, that would be more tax efficient than doing so after signing a
lucrative contract. Early on, the athlete will have a manageable investment portfolio and
reasonable expenses. This stage is where planning is most efficient. All too many athletes wait
until divorce is at hand or finances are out of control before taking any action.
Other Estate Planning Documents and Steps for the Athlete37
There are other core planning steps that are important for an athlete to address. These include:
Pension Plans
Many professional sports leagues offer pensions with extremely short vesting periods to their
players. The quality and generosity of a league’s retirement plan will vary by sport. In the NBA,
37 See generally, K. Eli Akhavan, Jonathan I. Shenkman, Don’t Drop the Ball, Trusts and Estates, March 2016 and
K. Eli Akhavan and Jonathan I. Shenkman, Planning for the Stars: Financial and Investment Planning for
Entertainers and Professional Athletes, Tax Stringer, January 2017 and February 2017.
1% of a players’ basketball-related income is invested into an annuity, 5-10% percent of their
salaries are automatically deferred into a retirement savings plan (unless they opt out), and, if a
player plays for 11 years and retires at age 65, they are guaranteed $195,000 a year in
retirement.38 On the other hand, the Professional Golfers’ Association (PGA), does not guarantee
retirement benefits; rather, benefits are tied to a player’s performance during the season. If a
player performs poorly or does not make the cut to play in many tournaments, he may have
limited retirement benefits.39
Regardless of the sport and the level of generosity, most league pension plans won’t offer
enough savings to last an athlete through retirement. Furthermore, most athletes will need access
to funds well before the normal retirement age. The advisor must be aware, and should inform
the athlete, that the pension plan is simply a supplement to the athlete’s earnings and cash flows.
Domicile
The athlete’s plan must identify an advantageous domicile, and then support that domicile for
state income tax planning. Domicile have a profound effect on the application of rules governing
spousal right of election, and a range of other planning considerations.
Revocable Living Trust
The proper use of a living trust can provide some measure of protection for athletes, and may be
especially effective if the athlete has a particular person, paramour, or child out of wedlock that
he or she wishes to benefit. As an inter-vivos trust, the athlete will have some flexibility in
establishing the situs for the trust and should select a jurisdiction with strong non-disclosure laws
and plan to have adequate nexus to that state. This might be especially important to minimize
disclosure of trust information to those claiming to be heirs or beneficiaries. Consideration
should be given to using a separate tax identification number for the revocable trust, using an
institutional trustee, and incorporating a trust protector as a further safeguard. Consider assigning
a tax identification number to the revocable trust rather using the athlete’s Social Security
number. That may provide some insulation from identity theft, etc.
Power of Attorney
Determine whether the athlete has already provided powers of attorneys to agents or others and
evaluate whether any changes need to be made. The athlete’s power of attorney needs to be
crafted to suit their unique circumstances. Depending on the situation, the athlete may grant one
power of attorney to coordinate endorsements and other agreements, and a separate power of
attorney to handle other financial matters. If there are existing powers to, for example, a
manager, that might be carved out from a new power. Consider specifying that the financial
agent should be named as the guardian for the property if one every has to be appointed.
Living Wills/Health Proxies
Athletes should create, and update as needed, health proxies to avoid the publicity of a court
appointed guardian. A health proxy is especially important if there are changes in the athlete’s
matrimonial or relationship status. Consider specifying that the health care agent should be
38 NBA Benefits Plan Typical…For Millionaire Ballplayers, The CFO Report, The Wall Street Journal,
October 11, 2011. 39 Mark Riddix, Top Pro Athlete Pension Plans, Investopedia, January 24, 2019.
<https://www.investopedia.com/financial-edge/0710/top-pro-athlete-pension-plans.aspx>.
named as the guardian for the person if one every has to be appointed. For some athletes, there
may be unique but very important personal wishes to convey. For example, if the athlete client is
a football player, there may be a strong desire to donate brain tissue for research. It has been
estimated that 60% of NFL players have suffered at least one concussion during their
professional careers, and 26% have experienced three or more concussions.40 For boxers the
statistics are more shocking -- 90% of boxers sustain a brain injury.41 An NFL player or boxer
might wish to expressly provide for tissue donations to fund research to help others. Different
athletes may have other personal objectives that standard forms and planning will ignore.
Disability Planning
While everyone faces disability risk, the likelihood of a disabling injury to an athlete is obviously
far greater. Although insurance may help ease the financial burden, simply purchasing a
disability policy is unlikely to provide anywhere near adequate protection. Contractual rights and
payments from the athlete’s team or other sources also are likely to prove inadequate. Advisors
need to inform and educate athletes as to the risk and importance of saving significant portions of
their salary to assure a viable future in the event of injury. As discussed above, the athlete should
purchase insurance products tailored toward this risk and consider use of a living trust, with an
institutional trustee and appropriately planned disability clauses.
Private Foundations
Since so many athletes earn tremendous wealth at a very young age, establishing a foundation is
an excellent way to safeguard money, create a future opportunity for meaningful involvement
following retirement (whether or not compensated), and provide current income tax deductions.
For the young athlete, this technique is ideal because it may take years, perhaps decades, for their
full charitable desires and objectives to solidify. For example, basketball great Brian Grant
certainly never would have imagined being diagnosed with young onset Parkinson’s disease
himself and establishing his own foundation to find a cure for the disease.
For the athlete client, the flexibility and control a foundation affords are likely worth the fixed
costs in terms of professional fees and administration. As a note of caution, athletes must
understand that the use of charitable planning tools is technically complex and the penalties for
abuse are substantial, so it is a role best suited for a trusted professional.
Right of Publicity
Generally, the right of publicity is the right of an individual to control how his identity is used
for commercial purposes. While there is no federal protection for the right of publicity, at
least 31 jurisdictions currently recognize this right either by statute or by common law.
Additionally, there is a difference among the states as to whether a right of publicity is
“descendible” (can be bequeathed) or if it extinguishes upon the individual’s death. Advisors
should consult the laws of the athlete’s state of domicile to determine the appropriate planning
for their client.
Conclusion
40 http://topics.nytimes.com/top/reference/timetopics/subjects/f/football/head_injuries/index/html. 41 http://menshealth.about.com/od/fitness/a/boxing.html
The key to success for a professional athlete lies within the athlete: in his genes, and in his work
ethic. But the key to long-term financial success for a professional athlete is recognizing that the
mistakes of others must serve as a lesson. Financially sound planning will allow the athlete to be
well-positioned for a secure financial future and avoid the many pitfalls that so many in
professional sports have fallen into in the past. In order to protect and preserve hard earned
wealth and secure a financially stable future, planning needs to happen in the present. Effectively
advising professional athletes requires the collaboration of all their advisors. Specifically, the
athlete must engage qualified estate and financial planning team, implement asset protection, tax
management, and estate planning steps in order to assure athlete’s financial well-being.
CITE AS:
LISI Estate Planning Newsletter #2777 (February 3, 2020) at http://www.leimbergservices.com Copyright 2020 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission. This newsletter is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of the officers or staff of LISI.